California Will Require Insurance Companies To Offer Coverage In Wildfire Zones (fastcompany.com)
- Reference: 0175809929
- News link: https://news.slashdot.org/story/24/12/31/2241227/california-will-require-insurance-companies-to-offer-coverage-in-wildfire-zones
- Source link: https://www.fastcompany.com/91253686/california-will-require-insurance-companies-to-offer-coverage-in-wildfire-zones
> Insurance companies that [1]stopped providing home coverage to hundreds of thousands of Californians in recent years as wildfires became more destructive [2]will have to again provide policies in fire-prone areas if they want to keep doing business in California under a state regulation announced Monday. The rule will require home insurers to offer coverage in high-risk areas, something the state has never done, Insurance Commissioner Ricardo Lara's office said in [3]a statement . Insurers will have to start increasing their coverage by 5% every two years until they hit the equivalent of 85% of their market share. That means if an insurer writes 20 out of every 100 state policies, they'd need to write 17 in a high-risk area, Lara's office said.
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> Major insurers like State Farm and Allstate have stopped writing new policies in California due to fears of massive losses from wildfires and other natural disasters. In exchange for increasing coverage, the state will let insurance companies pass on the costs of reinsurance to California consumers. Insurance companies typically buy reinsurance to avoid huge payouts in case of natural disasters or catastrophic loss. California is the only state that doesn't already allow the cost of reinsurance to be borne by policy holders, according to Lara's office. [...] The requirement is under review by the Office of Administrative Law before it takes effect within 30 days.
"Californians deserve a reliable insurance market that doesn't retreat from communities most vulnerable to wildfires and climate change," Lara said in a statement. "This is a historic moment for California."
Opponents of the rule say that could hike premiums by 40% and doesn't require new policies to be written at a fast enough pace. The state did not provide a cost analysis for potential impact on consumers. "This plan is of the insurance industry, by the insurance industry, and for the industry," Jamie Court, president of Consumer Watchdog, said in a statement.
[1] https://news.slashdot.org/story/23/05/31/2346230/climate-crisis-makes-it-impossible-for-some-us-residents-to-get-home-insurance
[2] https://www.fastcompany.com/91253686/california-will-require-insurance-companies-to-offer-coverage-in-wildfire-zones
[3] https://www.insurance.ca.gov/0400-news/0100-press-releases/2024/release065-2024.cfm
It will be interesting to see (Score:4, Insightful)
Just ho may insurance companies cut there losses an just leave California altogether there’s a point where you have to consider a location to hostile to do business in and just go.
Re: It will be interesting to see (Score:2)
They will all leave if this is reality. CA will have to set up its own insurance entity like FL (only applies to uninsurable areas) and the tax payers pay for the losses. None of this makes sense. Oh well
Wildfire damage includes smoke damage (Score:4, Interesting)
One of the key reasons insurance companies are fleeing my state of CA is that smoke damage must be covered, and large swaths of housing is close enough. My home in the middle of the San Fernando Valley (near CSUN) is miles from a "wildfire zone" yet has high insurance premiums because of this.
Re: (Score:2)
What would the alternative be? Not requiring smoke damage to be covered? Would banks write mortgages without smoke damage insurance? If smoke damage isn't covered and a house becomes uninhabitable, is the state going to make the homeowners whole?
The worst possible insurance product is one that costs money but doesn't cover the biggest risks.
Criticizing current policy without providing an alternative isn't very productive.
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Don't get government involved and let the insurance companies and people find a reasonable equilibrium.
If the government enforced insurance lets people repaint everything at minimum cost, that's what they will do. Even if it's far more reasonable to just pressure wash the siding with detergent most of the time.
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> The worst possible insurance product is one that costs money but doesn't cover the biggest risks.
Indeed.
Again, my home is miles away from wildfire zones. Lawyers have made it so that if I can merely "sense" the smell of smoke from a wildfire hundreds of miles away, I can file a claim for all-new insulation, paint, and carpeting. Not a "biggest risk" by any measure.
Re: (Score:2)
> It's ... well, fascism.
"Fascism" is a completely meaningless term because there are two contradictory definitions of it in common use:
"Everything I hate is fascism" (most common)
"Everything I like is fascism" (less common)
Insurance prices in California will spike (Score:3)
You can't mandate coverage and expect insurance to absorb the cost. This will result in all insurance in California to drastically increase and with some insurance companies even pulling out of California.
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> You can't mandate coverage and expect insurance to absorb the cost. This will result in all insurance in California to drastically increase and with some insurance companies even pulling out of California.
Exactly. If people are building in places of high risk, then they should either be paying crazily high insurance or get the message that playing with fire isn’t worth the cost. Building out of wood in a fire prone area is also crazy. How about in incentivising people to use materials and building designs adapted to the area?
Re: Insurance prices in California will spike (Score:2)
Most homes in Cali are made out of wood due to earthquake risk. Wood is more flexible and less dangerous during a quake.
Climate change is also a factor. Many places that used to be considered safe are now higher risk for fire.
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I assume that California will just set insurance prices. Easy peasy.
Let the insurance force them to chop trees (Score:2)
Manicure the first 100 feet near the home, fix the silly eaves, use roof sprinklers, then give them insurance.
People who want to live right on the edge of a forest should bear the burden of it themselves. It's comfy, until it's not.
The calif way (Score:2)
This is California's way of forcing me to pay for others' either stupidity or lavish lifestyle.
Left or right, same lesson (Score:3)
Politics can alter how people perceive reality, but it can't alter reality itself.
There is an increased risk, so insurance has increased costs. To maintain profits, this means increased premiums. If you legislate the coverage, either the premiums go up (spread around or just on the extreme risks), or the insurers leave the state because it's no longer profitable enough for them to bother.
You can't legislate affordable insurance in unaffordable circumstances. Even if the state takes over, that's just pushing the cost onto all taxpayers, not making it disappear.
Insurance companies will respond (Score:2)
by not writing policies in California. The one's that go along with this mandate and go on to make big losses will bankrupt themselves. I just don't see how it could go any other way.
Calif. premums vs.other states and Going Bare (Score:2)
Insurance costs are currently a bargain in California compared to other states such as Florida or Texas.
The re-insurance pass-through costs are going to raise premiums for everyone in California by 30-40%.
For those who can't afford these 30-40% premium increases and own their home free and clear, they might have no alternative but to "go bare". This is especially true of of retired people on fixed incomes. Going bare means not having homeowners insurance at all. There is no state law on requiring homeowners
Convoluted way of getting to accurate pricing (Score:5, Interesting)
This is an Economics 101 example of over-regulation that achieves nearly nothing. Insurance companies are generally willing to write policies for all but the highest-risk situations. If the risk of a wildfire where you live is so high that you can't get insurance, you probably don't want to live there. Without price controls, there would be insurance companies willing to take on most properties especially when reinsurance is available.
No insurance company is going to write policies when there is a government-mandated price cap that makes the risk way too high for the profits that one can potentially make. Rather than allow for market pricing, we get a situation where the government is still mandating the price, just through a more complex formula. If the state continues to "reform" by making the government-imposed pricing structure more complex, eventually things might get to a point where the imposed price nearly matches the free market price.
Of course there's a better and less dramatic way of getting to a market price. You can just allow market to dictate prices.
Re: Convoluted way of getting to accurate pricing (Score:4, Insightful)
Have you looked at Florida? Opposite politics, same problem, similar solutions being discussed.
governments (normally) need to look out for their citizens safety. Cannot pay those property taxes if you die in a forest fire out a sink hole swallows your family home with you in it. So both are looking for ways to strong arm insurance companies into covering high-risk properties.
The only other alternatives are something like the federal flood insurance policy for coastal states (which does not actually operate as insurance, and forced tax payers to pick up the bill), to let those communities die by catastrophe, or legislate those areas to be uninhabitable (as was done in post Katrina New Orleans). That last one may be the a decision considering how little we are doing about climate change, but it is also the one with the worst political products for reelection.
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I live in a fire zone 9 of 10 on the risk side because a property within 10 houses of me allows more than 10 acres of brush. It is an old clay mine, and they don't take care of their landscape, so the fire risk was deemed high. I was dropped by my carrier. The mortgaging bank had trouble finding policies themselves and threatened to call the note due. I told them I would declare bankruptcy and shield my home anyway, and we agreed to look for insurance. Within the same summer, 3 wildfires burned to within 10
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The obvious alternative is Obamacare for homeowners insurance. Force everyone to buy a policy. Jack up the prices for people not living in danger zones once there is no way out of the scheme. Added bonus: then you can get rid of FEMA by forcing insurance companies to provide coverage for disaster relief.
Re: (Score:3, Insightful)
To paraphrase Obama, "under this plan, insurance prices will necessarily skyrocket" and that's assuming companies like State Farm even bother returning to CA. Sure, there's a lot of money in returning but that needs to be balanced against the cost of doing business in CA as well as the risk to the company in dealing with such a hyperregulated state.
Once the sticker shock comes, Sacramento will somehow blame Trump for it. Meanwhile, the rest of us just point to CA and laugh. You get what you vote for, folks
Re:Convoluted way of getting to accurate pricing (Score:4, Interesting)
If you think it's just California or "blue" states, I don't think you're following the insurance market very well. Look at homeowners insurance here in Florida. The system is equally as convoluted and bad.
Buildings that aren't really insurable (not built to survive any weather, in a flood zone, and not maintained) are covered by government issued policies. Of course those premiums aren't enough to match the actual risk. No problem. A surcharge is added to the insurance of low-risk properties to make up the difference!
Insurance is expensive many places simply because development was done in a way that resulted in unacceptably high risk. People see that insurance is the highest component of their monthly mortgage payment and demand the government do something even though the problem wasn't really of the government's making other than perhaps allowing such ridiculous building. Populists on the left and on the right make impossible promises. Rinse and repeat.
It's true that you get what you vote for. But voters across the political spectrum continuously choose promises that are disconnected from reality and end up with bad policy.
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> Insurance is expensive many places simply because development was done in a way that resulted in unacceptably high risk.
Many of the high-risk sites actually are financially viable, even with very high insurance premiums. There are very high-priced ocean-front properties with a good view, for example. Their market value can still drop a lot from where it has been to compensate for high insurance before the land value reaches $0. Maybe these plots will end up siting bungaloes with the same total cost of
Nothing of the sort will happen (Score:2)
The insurance companies will collect premiums with the understanding that they won't ever actually pay anything out. If a disaster happens the insurance companies will go to the government and the government will cover it.
This is an extremely roundabout way to do the kind of socialism we need but refuse to acknowledge we need. It's like how back in the '30s when we started doing social security so we didn't have tens of millions of homeless old people those old people argued and fought against taking th
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What exactly prohibits CA, bluest of the blue states legislatures from creating a state run insurance company? My guess is nothing!
There should be the political will to do it there if there is anywhere. So the reality is if the politicians have to lie about it, still as you claim its not actually something people really want. Government should be promoting the general welfare after all, there is no reason to afford people special protection to own property in some of the most desirable places in the natio
Re: (Score:2)
Actually, I think it's a bit of both, but also kind of missing the point. They're removing their unique situation of not allowing the costs of re-insurance to be bourne by the policy holders (I'm assuming there is some typically Californian reason why this is necessary in the first place, but whatever), which does indeed allow the free market to work - provided that the costs are calculated on a per-policy basis; someone living in a low-risk area should not be subsidising the insurance of someone who has c
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Aren't all the nice places to live in CA warm and dry, on a major faultline, or in a dense forest where prohibitions exist on forest maintenance?
A mobile home in the middle of the California desert has very little fire risk. But few want to live there.
Most people want to live in risky areas and not pay for that luxury.
Some dude in Ohio is reading this, shaking his head, and getting ready to go shovel snow.
And probably anticipating that eventually he'll be paying for those people living the Cali Lifestyle. c
Re: Convoluted way of getting to accurate pricing (Score:2)
Correct. Only I'm in Michigan.
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I've read about this somewhere else. TFA and TFS are confusing. Nobody is requiring that 85% of their *total* policies be high-risk. The requirement is that they achieve 85% of the expected value if their policies were randomly distributed around the state. That is, if 1% of total properties in the state are high-risk, insurers would have to have 0.85% (85% or 1%) of their policies be high risk. Basically everyone has to write their fair share. It's not the case that 85% of development in California is
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> This is an Economics 101 example of over-regulation that achieves nearly nothing. Insurance companies are generally willing to write policies for all but the highest-risk situations. If the risk of a wildfire where you live is so high that you can't get insurance, you probably don't want to live there. Without price controls, there would be insurance companies willing to take on most properties especially when reinsurance is available.
While reduced to a money figure, it is trying to tell people something. Don't build your gadamned house in an area where it will regularly burn up.
Or if it is so important to build there, allow those market systems to do their work, just like you say. I suppose they could exterminate every last chaparral bush as an alternative, completely change the ecosystem.
It is possible that a lot of companies will simply pull out of Cali if they continue to lose money.
It's just roundabout socialism (Score:2)
When the insurance companies can't pay because the claims are too high The government will just step in and pay it for them. The basically just lets the insurance companies collect premiums while offering no value whatsoever.
America has dozens and dozens of cases where we do socialism but we find socialism icky so we let a private company scam 20 or 30% off of our incomes. This is just another one of those
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A large portion of the entire world is at risk of wildfire, it's not feasible to simply say "you probably don't want to live there"